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Definition: Haircut

Haircut, in terms of finance, is the difference on value between the amount of money taken as a loan and the actual value of the asset for which the loan is taken. The haircut is the loan value-to-asset value ratio., which is given as a percentage of the total market value of the collateral.

In the stock market, the term haircut is also referred to as margin during the trading of options, futures, stocks etc. It is the minimum amount of money required for trading and keeping the position.

Haircut has an important role for many kind of trades, for instance for Repo or Reverse Repo. Lower haircuts allow for more debt leverage.

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